The Chrysler Takeover Attempt Harvard Case Solution & Analysis


Chrysler came into being in the year 1925 by Walter Percy Chrysler, who was a former president at General Motors, and due to some differences regarding its policies, he resigned. Chrysler saved Maxwell Motor Corporation from going bankrupt and converted it into Chrysler Automobile. After its establishment and its first exhibition, the company became a major hit and sold thirty two thousand cars in its first year, generating over 4 million dollars of revenue. From there, the company only grew till 1940, and had successfully made the acquisitions of Dodge and Plymouth. In addition to that, by the end of 1940, the company had twenty five percent share of the market and had become the second largest manufacturer of cars, closely followed by Ford. General Motors, on the other hand was still leading the automobile industry. By the end of 1960’s, Ford succeeded Chrysler and it slipped down to the number three position.

The start of 1970s brought the first downturn for the company, as inflation and oil prices increased drastically. The company lost huge amount of money in year 1974 till 1979, starting form a loss of around fifty two million dollars to reaching at a loss of around 1.1 billion dollars in 1979. Government bailout and negotiations with union and creditors saved the company from its first crisis.

By the year 1981, the company was back on its tracks, and was generating profit like before.

The Chrysler Takeover Attempt Harvard Case Solution & Analysis


The company experienced its second downturn in the year 1992 and 1993, when its stock prices decreased by a 16 percent.

Now, in the year 1995, the largest shareholder of the company Kerkorian has offered the company to buy its outstanding shares at fifty five dollars each, when currently the share price is at thirty-nine dollars. The total bid is of nineteen and a half billion dollars. It included 2 billion dollars in equity that was owned by Kerkorian and Iacocca themselves, three and a half billion dollars of equity from other investors. 8.8 billion dollars of debt from bank, and the remaining five and a half billion is to come from the cash of company.

Question No. 1

Major Risks

At this point in time, the company is not in any financial problems as it has become stable again and has started generating positive revenues and is also successfully converting them into profit. But, as the industry in which it operates i.e. automobile industry is of cyclical nature, the company is always exposed to many risks. The industry is exposed to any changes in the economy of the US. Like previously, increase in inflation and oil prices can affect the sales of the company.

In addition to that, as happened earlier, in periods when the sales is high, the company increases its production, and when the sales drop, it affects the inventory and create problems regarding excessive inventory and its management.

Moreover, the company is also exposed to the risk of an increase in the interest rates. Increased interest rate would result in increasing the cost of capital for the company and thus, in result, this would decrease the profit margin for the company.......................

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